Misdirected Energy

Published 4:00 am, Tuesday, April 10, 2001

THERE MUST have been sighs of relief in skyscrapers across Houston when Gov. Gray Davis made his televised speech Thursday night. For all the buildup, the speech lacked the bold strokes or "give-'em-hell" resolve that would have seemed fitting for a problem that is draining $50 million a day from the state treasury.

The governor's speech amounted to little more than a lame defense of his response to the energy crisis to date.

About the same time as Davis was preparing his speech, PG&E was cutting checks for $50 million in bonuses to some 6,000 employees. The utility then declared bankruptcy on Friday.

The mess grows deeper -- as does the certainty that Californians are going to be digging deep in one pocket (utility rates) or another (state taxes) to keep the lights on and the utility companies from terminal insolvency.

One of the options being discussed would be for the state to go into the power business. "Seize the power plants," the cry of the hour in Sacramento, has a tempting ring. But we're more than slightly skeptical of the prospect of the state using its eminent domain powers to take over some power plants. Hasn't this debacle made it abundantly clear that state government is not qualified to operate an energy business?

California does need to conserve electricity and build power plants. Those steps, however, amount to a partial solution.

Notably absent from the top has been any hard-edged effort to lean on the generating companies and middlemen who have been making a killing off California's predicament. President Bush, it appears, is not about to disturb the party for his Texas buddies by prodding the Federal Energy Regulatory Commission to fully invoke its authority to cap prices. The extent of Bush's "help" so far has been to cite the California energy crisis as dubious justification for the opening of wilderness areas to oil exploration.

Bush may figure he can win a second term without California, but he should not forget this state's significance in the national economy. The White House should remember that any crisis that threatens California's economic health is a national crisis.

No one should be under the illusion that the remedies will be painless. But Californians have a right to know how and why their sacrifices are gilding the wallets of others. The governor needs to make a fuller accounting of the amount the state pays for power, as state Treasurer Phil Angelides has been demanding. PG&E should be prepared to disclose the timing and extent of any shifting of financial assets to its parent company as its subsidiary slid toward bankruptcy.

The escalating utility rates and depth pf the extent of the state bailout are especially unnerving in view of the reports of 300 percent profits by some of the large private generators that provide about 40 percent of California's power supply.

Two fledgling measures in the Legislature (AB128x by Assemblywoman Ellen Corbett, D-San Leandro, and SB1x by state Sen. Nell Soto, D-Pomona) would slap a windfall-profits tax on generators or middlemen who are profiteering from the crisis. Assemblywoman Dion Aroner, a Berkeley Democrat, has suggested the revenue should go directly into ratepayer relief.

Such a windfall-profits tax makes sense as long as the definition of "reasonable return" accounts for the risks associated with a big capital investment in a power plant. It would not be in the state's long-term interest to impose a tax so onerous that it would chill all incentive for new capacity. Still, as Corbett put it, the generators have gone well beyond the bounds of "a fair profit" in their current gougefest.

And they have no incentive to lower those rates as long as the state is picking up the costs that cannot be passed on to ratepayers.

"We're draining the general fund dry," said Corbett, chair of the Assembly Revenue and Taxation Committee. "We're talking about $45 million to $50 million a day. What does that do to the education budget? What does that do to the transportation budget? What does that do to all the other important services that the state supplies?"

The governor's signature on a windfall-profit tax would speak louder than a thousand prime-time speeches.